Lord Mandelson rules out VAT reprieve

Lord Mandelson, the Business Secretary, has delivered a blow to retailers by
ruling out a delay to the planned increase in VAT due at the end of this
year.

Lord Mandelson said a delay of "just one day" in raising VAT would be too costlyPhoto: CHRISTOPHER PLEDGER

Harry Wallop and James Hall

2:46PM BST 24 Sep 2009

He said a delay of "just one day" in raising the tax would cost the Government too much money.

The Government originally planned for the sales tax to increase from 15 per cent to 17.5per cent on January 1.

Leading figures in the retail and hospitality industry, including Sir Philip Green, Justin King and Sir Stuart Rose, have argued it will be an "administrative nightmare" to implement the change not only on a Bank Holiday, but also at the busiest time of the year for restaurants, hotels and shops.

The Daily Telegraph campaigned for the Treasury to delay the planned rise in a bid to help families on a tight budget and businesses fighting the recession.

There had been a hope that the date could move by a few weeks, until after the end of the January sales.

However, Lord Mandelson quashed those hopes on Wednesday, when he appeared at the British Retail Consortium's annual dinner.

Despite insisting in his speech that pulling away Government support "too early, too hasty, or too indiscriminate would undermine the very growth on which locking in the recovery depends", he refused to contenance continuing the lower rate of VAT.

Speaking to the Daily Telegraph after the speech, he said: "Do you realise how expensive it would be to delay the date? Just one day would cost millions of pounds. Just one day."

Value Added Tax was cut from 17.5 per cent to 15 per cent by Alistair Darling, the Chancellor, in November last year for a period of 13 months to help beleaguered shopkeepers and consumers as they entered the deepest recession in a generation.

VAT is levied on nearly all goods with the exception of food. Treasury forecasts suggest that, during the course of the VAT reduction, consumers should save £12.4 billion – or £476 for every household.

Extending the planned rise to the end of January 2010 would cost the Treasury an estimated £800 million, economists calculate.

Many retailers did not welcome the cut when it was introduced but most, if grudgingly, acknowledge it has helped them keep prices down and attract customers during the recession. Retail sales on the high street have held up far better than most economists expected.

Shopkeepers now argue it will be an administrative nightmare and an extra cost to change their prices during the sales period and a bank holiday.

Rob Templeman, the chief executive of Debenhams, said it was as a "complete misjudgement" and said changing every price in the retailer's 155 stores on New Year's Eve would take 250,000 man hours in total.

Retailers accept now that, despite their intensive lobbying, there is very little hope of either Mr Darling or Lord Mandelson shifting the date.

Stephen Robertson, the director general of the British Retail Consortium, said: "I'm afraid our chances are zero. The best we can hope for is that the HM Revenue & Customs takes a very light-touch approach and allows retailers to take a few days to implement the changes."